CBA mortgages underperform

Australia’s largest lender has reported below system growth in residential mortgages over the year to 30 June.

CBA recorded home lending growth of 6.6 per cent, well below system growth of 7.4 per cent for the 2014-15 financial year. Yesterday’s full year results trading update noted that the bank was “underweight in high growth segments – broker and investment lending”.

Broker-originated loans accounted for 43 per cent of the bank’s mortgage portfolio and 45 per cent of new business at 30 June. Investment lending accounted for 35 per cent of the bank’s portfolio and 37 per cent of new business.

On Monday, CBA’s 27-basis-point increase on investor loans came into effect following APRA’s decision to cool investor credit growth.

“In terms of the response to the pricing it’s a bit too early to tell,” CBA chief executive Ian Narev said.

“In terms of the response more broadly to the increased scrutiny from the regulators, to us it’s a bit harder to judge because we were below the 10 per cent from the start.

“These things in the market, because of the nature of the way approvals processes work, you don’t see an immediate impact on day one; you hope to see an impact within a number of months.

“I think it is fair to say we are starting to see a bit of that impact but we will see how it pans out.”

Mr Narev said he believes APRA was concerned about the role that lending standards may play in recent market imbalances.

“I think a combination of the limits put on by APRA and the pricing responses from the major banks are probably going to be sufficient to give everybody that higher degree of comfort,” he said. “We will just have to see how it runs.”

CBA posted a $9.14 billion profit for the full financial year but recorded a drop in net interest margin (NIM) by 5.0 basis points to 2.09 per cent.

Mr Narev said the decrease was driven by the negative impacts of the falling cash rate environment and an increase in liquid assets.

“Excluding treasury and markets, group NIM was down one basis point over the year, with continued sound management of the volume/margin trade-off during the period in a highly competitive, low-rate environment,” he said.

CBA mortgages come under its retail banking division, which saw a six per cent fall in earnings in the six months to 30 June. Interest income fell by one per cent over the same period.